Online sales tax is back — and this time, it might actually have a shot at passing


Supporters of online sales tax legislation are suddenly back in business. Still, obstacles remain in the House and Senate. (Reuters/Reuters)

When the Senate passed legislation last year allowing states broader latitude to collect sales on online purchases, the proposal was immediately cast aside in the House — and there is has remained, stuck on a shelf. Until now.

Suddenly, even with the midterm elections nearing, the bill’s supporters believe they have found the perfect opportunity to try to push it through the lower chamber.

The House last week easily approved a bill dubbed the Permanent Internet Tax Freedom Act that would renew a longstanding ban on taxing access to the Internet. Considered a must-pass proposal, the legislation would prohibit state and local governments from charging residents fees to browse the Web.

So far, the bill has faced virtually no opposition. But that could soon change.

A bipartisan group of senators last week introduced what they’re calling the Marketplace and Internet Tax Fairness Act, which couples an extension of the ban on access taxes with their online sales tax proposal. In short, that second portion would grant states the authority to collect sales taxes from out-of-state retailers who sell and ship products to consumers within their borders. Currently, officials can only levy sales taxes on retailers who have a physical presence, be it a store or warehouse, in their states.

It’s an issue that has divided retailers based on how they sell their goods.

Most of those who sell via brick-and-mortar stores are lobbying hard for the bill, which they say would level the playing field for all retailers. Those who sell their goods online, on the other hand, say they would struggle to monitor and collect any number of the hundreds of local and state sales tax rates that exist across the country.

House Judiciary Committee Chairman Bob Goodlatte (R-Va.) has expressed the same concerns as that second camp, warning that the Senate proposal would swing the advantage in the opposite direction by confronting online retailers with tax compliance nightmares not suffered by their brick-and-mortar counterparts. He has thus far refused to take the bill up for consideration in the House.

So, in what appears to be a last-ditch effort to at least force a vote in the opposite chamber, the senators behind the sales-tax legislation will be urging their colleagues not to send the access-tax bill back without the sales-tax portion attached.

Question is, will it work?

Standing in their way will likely be Senate Finance Committee Chairman Ron Wyden (D-Ore.), who authored the original Internet access legislation and has called that ban and online sales tax “separate issues.”

Short of a change of heart from him, the Senate Democratic leadership would have to be convinced to go against the wishes of the committee in charge of online tax issues and move forward on the combined package — not impossible, but a tough sell.

Should the Senate link the two measures, though, lawmakers could be headed for yet another standoff, as the current access-tax ban is scheduled to expire in November. That could force the House to decide between allowing states to suddenly start taxing Web access and swallowing the pill on the online sale tax legislation.

Follow J.D. Harrison and On Small Business on Twitter.

J.D. Harrison covers startups, small business and entrepreneurship, with a focus on public policy, and he runs the On Small Business blog.
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